The May 22 coup d’etat in Thailand will neither restore investor confidence nor help its economy to avoid a cut in its growth forecast this year of 2-3 percentage points from its pre-crisis 4.5 per cent if the political impasse persists for the rest of the year, according to Moody’s Investors Service.

Moody’s currently assigns Thailand a sovereign rating of “Baa1”, with “stable” outlook. However, the coup is credit-negative, underscores the country’s perilous politics and will not restore investor confidence nor ease downward pressure on the gross domestic product, as reflected by real GDP trending far below its potential growth rate this year.

Thailand’s National Economic and Social Development Board (NESDB) also recently cut its view for full-year 2014 GDP growth to 1.5-2.5 per cent from 3-4 per cent estimated last November, when the anti-government political turmoil first surfaced.

Army chief Prayuth Chan-ocha in a statement said the coup was necessary “to forge a way out of the country’s political crisis”. The military’s decision to abrogate the 2007 Constitution, which had reaffirmed the country as a democracy with the rights of free speech and assembly, marks the country’s second coup since 2006, when the military ousted then-prime minister Thaksin Shinawatra.

The prolonged stand-off between pro- and anti-government forces is taking its toll on the economy. Official data, released on May 19, showed that real first-quarter GDP on a seasonally adjusted basis shrank 2.1 per cent quarter on quarter or 0.6 per cent year on year. This marks Thailand’s first yearly contraction since late 2011, and is a result of consumers and investors holding back on spending because of the political turmoil.

Even if the chaos subsides, there is no assurance that the military government can remove uncertainty from the investment environment. The NESDB in its economic outlook for this month said a decline in Board of Investment applications and approvals since the second half of last year threaten GDP growth.

The administration of Yingluck Shinawatra had formulated a multi-year infrastructure program worth $61.5 billion, or 15 per cent of GDP, which the Constitutional Court declared invalid in March. Even if that programme was reinstated, public infrastructure expenditure without an increase in private-sector investment may not be able to sustain investment levels sufficient enough to ensure significant economic growth.

Since late last year, government bond yields have been immune to the political events, as has the baht, although Thailand’s high international reserves have declined somewhat in the past year.

“Nonetheless, we see the coup as further weighing on Thailand’s economic performance, with the risk that political uncertainty will continue to dim the investment climate and dampen growth performance,” Moody’s said.

The credit profiles of other regional sovereigns have improved and Moody’s upgraded its ratings by multiple notches from 2006-14 – notably China to “Aa3” from “A2”, South Korea to “Aa3” from “A3” and Indonesia and the Philippines to “Baa3” from “B1”.

The coup is also credit-negative for banks because it adds pressure to already weakened investor and consumer confidence and risks stalling loan growth and undermining asset quality.

The May 22 coup d’etat in Thailand will neither restore investor confidence nor help its economy to avoid a cut in its growth forecast this year of 2-3 percentage points from its pre-crisis 4.5 per cent if the political impasse persists for the rest of the year, according to Moody’s Investors Service.

Moody’s currently assigns Thailand a sovereign rating of “Baa1”, with “stable” outlook. However, the coup is credit-negative, underscores the country’s perilous politics and will not restore investor confidence nor ease downward pressure on the gross domestic product, as reflected by real GDP trending far below its potential growth rate this year.

Thailand’s National Economic and Social Development Board (NESDB) also recently cut its view for full-year 2014 GDP growth to 1.5-2.5 per cent from 3-4 per cent estimated last November, when the anti-government political turmoil first surfaced.

Army chief Prayuth Chan-ocha in a statement said the coup was necessary “to forge a way out of the country’s political crisis”. The military’s decision to abrogate the 2007 Constitution, which had reaffirmed the country as a democracy with the rights of free speech and assembly, marks the country’s second coup since 2006, when the military ousted then-prime minister Thaksin Shinawatra.

The prolonged stand-off between pro- and anti-government forces is taking its toll on the economy. Official data, released on May 19, showed that real first-quarter GDP on a seasonally adjusted basis shrank 2.1 per cent quarter on quarter or 0.6 per cent year on year. This marks Thailand’s first yearly contraction since late 2011, and is a result of consumers and investors holding back on spending because of the political turmoil.

Even if the chaos subsides, there is no assurance that the military government can remove uncertainty from the investment environment. The NESDB in its economic outlook for this month said a decline in Board of Investment applications and approvals since the second half of last year threaten GDP growth.

The administration of Yingluck Shinawatra had formulated a multi-year infrastructure program worth $61.5 billion, or 15 per cent of GDP, which the Constitutional Court declared invalid in March. Even if that programme was reinstated, public infrastructure expenditure without an increase in private-sector investment may not be able to sustain investment levels sufficient enough to ensure significant economic growth.

Since late last year, government bond yields have been immune to the political events, as has the baht, although Thailand’s high international reserves have declined somewhat in the past year.

“Nonetheless, we see the coup as further weighing on Thailand’s economic performance, with the risk that political uncertainty will continue to dim the investment climate and dampen growth performance,” Moody’s said.

The credit profiles of other regional sovereigns have improved and Moody’s upgraded its ratings by multiple notches from 2006-14 – notably China to “Aa3” from “A2”, South Korea to “Aa3” from “A3” and Indonesia and the Philippines to “Baa3” from “B1”.

The coup is also credit-negative for banks because it adds pressure to already weakened investor and consumer confidence and risks stalling loan growth and undermining asset quality.